Microsoft on Tuesday confirmed that it plans to acquire Internet communications service Skype for $8.5 billion in cash to support services like Xbox and Windows Phone.

The two companies announced they have entered a definitive agreement that has been approved by the boards of directors of both Microsoft and Skype. In a statement, Microsoft said the combination will extend Skype's world-class brand and the reach of its networked platform, all while enhancing Microsoft's existing portfolio of real-time communications products and services.

"Skype is a phenomenal service that is loved by millions of people around the world, Microsoft Chief Executive Steve Ballmer said. "Together we will create the future of real-time communications so people can easily stay connected to family, friends, clients and colleagues anywhere in the world."

Under the deal, Skype will become a new business division within Microsoft, and Skype CEO Tony Bates will assume the title of president of the Microsoft Skype Division. In that role, he will report directly to Ballmer, the head of Microsoft.

'Microsoft and Skype share the vision of bringing software innovation and products to our customers," Bates said. "Together, we will be able to accelerate Skype's plans to extend our global community and introduce new ways for everyone to communicate and collaborate."

Skype will support Microsoft devices like Xbox and Kinect, Windows Phone and a wide array of Windows devices, and Microsoft will connect Skype users with Lync, Outlook, Xbox Live and other communities. Microsoft will continue to invest in and support Skype clients on non-Microsoft platforms. Skype applications are currently available for both iOS devices and the Mac.

Founded in 2003, Skype was acquired by eBay for $2.6 billion in September 2005, and then acquired by an investment group led by Silver Lake in November 2009. In the last 18 months, Skype has reportedly increased monthly calling minutes by 150 percent, developed new revenue streams and strategic partnerships, acquired the intellectual property powering its peer-to-peer network, and recruited a new senior management team.

Rumors of a Skype deal surfaced earlier in the week. Sources told The Wall Street Journal that Google and Facebook were also seen interested in acquiring the company.

Apple's own FaceTime standard for video chat has seen great success since it debuted on the iPhone 4 last year. FaceTime support now spans across Apple's product lineup, including the iPod touch, iPad 2, and Mac hardware.

Skype will likely be the standard now with availability across several platforms and devices. With Facetime still restricted to only iOS devices, it really will be of limited use to those trying to stay in touch with extended family and friends often using non-Apple devices.

I have no idea why Apple never bothered following thru with making Facetime an open standard as promised, but with MS purchase of Skype I wouldn't be surprised to see Apple let it quietly vanish.

Skype will likely be the standard now with availability across several platforms and devices. With Facetime still restricted to only iOS devices, it really will be of limited use to those trying to stay in touch with extended family and friends often using non-Apple devices.

I have no idea why Apple never bothered following thru with making Facetime an open standard as promised, but with MS purchase of Skype I wouldn't be surprised to see Apple let it quietly vanish.

It could also be the reverse.

Facebook was looking for a video component, if MS manages to force them onto Skype then FaceTime is in trouble. If Facebook on the other hand started using FaceTime, Skype would quickly become a seniors-only Windows-only affair.

Also, Apple hasn't released anything for non-Apple platforms, but they indicated they were going to. If there is a FaceTime for Windows then the battle is truly on and I like FaceTime's chances.

Skype will likely be the standard now with availability across several platforms and devices. With Facetime still restricted to only iOS devices, it really will be of limited use to those trying to stay in touch with extended family and friends often using non-Apple devices.

I have no idea why Apple never bothered following thru with making Facetime an open standard as promised, but with MS purchase of Skype I wouldn't be surprised to see Apple let it quietly vanish.

Facetime just isn't that big a deal like Apple made it out to be. I think ive used it 3 times in total, twice on my iPad 2 and once on my macbook. Everyone i know who owns a mac has Skype to video chat and thats what we all use, and the best thing is it isnt platform specific.

It would have been nice to see Facetime on more than Apple products, and while expanding out costs money, it would have been a perfect way for them to move more iAds to offset the costs.

I am quite intrigued at how MS will implement this into Xbox and Kinect, maybe they'll show something at E3.

I'm still trying to figure this deal out. eBay unloads Skype for a mere $2.75b after paying $2.5b for it and not two years later, Microsoft pays $8.5b for it? Seriously? I mean, the AI article speaks of their improved business model but is it enough to more than triple their valuation? We all know that Microsoft is good for the cash, but I can't help think that they ended up in a bidding war with Facebook and Google and wound up overpaying.

It's also an interesting play for them in terms of cell-phone carriers. They never liked Skype anyway and now Microsoft, the maker of a major phone platform owns them. Maybe Microsoft considers having Skype will be a good negotiation tactic but regardless, things get bumpy from here.

If Apple expands FaceTime to cover everything Skype does (Audio only calls and multiplatform, mostly), it will be able to beat Skype quite easily, IMO. Especially now that Skype is aligned with MS, and will have inevitable transitional pains.

I still feel to this day that Apple wasted a good opportunity and are simply doing the same with Facetime.

Facetime has many benefits over Skype or MSN but until they release a Windows version or come to some type of partnership with someone who will bring it to Windows it's going to be a lame duck. \

-- While Jobs advertised that FaceTime would be an open standard for others to implement - it appears that this is not the case. My recent inquiries to Apple on the subject were rebuffed with "No news"
--

I have x box at home and MS reaslly is trying so f..g hard to do great things for its clients . As much as i hate MS ,I love X-BOX . This Skype deal seems like a waste of money . I've always felt that some 14 yr old pimple faced kid will write some great Soft Ware and blow them all out of the water.

I hope apple can make its own home grown phone revise from scratch . A nano -ized free call phone !!

...
Facebook was looking for a video component, if MS manages to force them onto Skype then FaceTime is in trouble. If Facebook on the other hand started using FaceTime, Skype would quickly become a seniors-only Windows-only affair. ...

I think you can rely on FaceBook to make the wrong decision. But I don't think FaceTime will be in trouble because of it.
FaceTime is, like all things Apple, high quality and super easy to use. It will stand on its own, especially when Apple opens up the specification.

Facebook was looking for a video component, if MS manages to force them onto Skype then FaceTime is in trouble. If Facebook on the other hand started using FaceTime, Skype would quickly become a seniors-only Windows-only affair.

Also, Apple hasn't released anything for non-Apple platforms, but they indicated they were going to. If there is a FaceTime for Windows then the battle is truly on and I like FaceTime's chances.

Facebook using FaceTime has a nice ring to it. Could be a match made in heaven for both Facebook and Apple! Better yet, I would love to see this be the big acquisition that Steve has referred to when justifying the huge stockpile of cash. I know, a big leap but interesting thought.

The article mentioned that eBay bought Skype for $2.6 billion. What did they sell it for?

According to Wikipedia they sold 65% for $1.9 billion (ie, valued at $2.9 billion for the total). Now the venture capital company that bought the 65% and E-Bay split the difference, $8.5-2.9, ie, $5.5 billion as a profit two to one, ie, E-Bay gets $1.7 billion and the others $3.8 billion.
(Numbers are only approximate, calculated without the use of a calculator.)

The article mentioned that eBay bought Skype for $2.6 billion. What did they sell it for?

Quote:

Originally Posted by Sevenfeet

I'm still trying to figure this deal out. eBay unloads Skype for a mere $2.75b after paying $2.5b for it and not two years later, Microsoft pays $8.5b for it? Seriously? I mean, the AI article speaks of their improved business model but is it enough to more than triple their valuation? We all know that Microsoft is good for the cash, but I can't help think that they ended up in a bidding war with Facebook and Google and wound up overpaying.

It's also an interesting play for them in terms of cell-phone carriers. They never liked Skype anyway and now Microsoft, the maker of a major phone platform owns them. Maybe Microsoft considers having Skype will be a good negotiation tactic but regardless, things get bumpy from here.

FYI, from my understanding, eBay actually sold a 65% stake for $1.9b. The result valued Skype at $2.75b but eBay lost cash on the deal. Here's a CNET article that described the deal.

Facebook using FaceTime has a nice ring to it. Could be a match made in heaven for both Facebook and Apple! Better yet, I would love to see this be the big acquisition that Steve has referred to when justifying the huge stockpile of cash. I know, a big leap but interesting thought.

Yes, it sure sounds ... right! It makes you wonder if Apple thought of this all along (naming, that is). But no, FB is not selling to AAPL or anyone else. Zuckerberg will never work for anyone else. He does not have to. He's a true entrepreneur - it's about running your own business and not selling out for a profit.

-- While Jobs advertised that FaceTime would be an open standard for others to implement - it appears that this is not the case. My recent inquiries to Apple on the subject were rebuffed with "No news"
--

I think you can rely on FaceBook to make the wrong decision. But I don't think FaceTime will be in trouble because of it.
FaceTime is, like all things Apple, high quality and super easy to use. It will stand on its own, especially when Apple opens up the specification.

J.

Unless Facetime is ported to Android too, it will never have a chance of becoming a "standard". You really think Apple will do that?

IMO, Microsoft just made Facetime a minor feature on an isolated platform unless Apple has it already developed and ready for a multi-platform, and works over more than wi-fi, within a few short months. With MS at 80%+ of the installed OS base, Apple can't be timid and slow as a sloth to show they intend to commit to Facetime as an open standard.

Developers have a clear and present option to integrate with Skype, particularly with official MS support now. An open-source Facetime is still vaporware.

Will MS axe compatibility between OS versions? Will they try to close out iOS and Mac OS? Put out special features for Windows only?

This is how they gained dominance on the desktop, using IE to marginalize competing OS and browsers.

It is a sad day for longtime Skype users.

Everything I've seen about Ballmer tells me he's a spiteful little troll. Being that his early comment about the iPhone has made him a laughing stock in many circles then I'd say that he definitely will do anything he can to hurt iOS.

Ballmer seems to have a knack for wasting shareholder money. Just return the $8.5 billion to shareholders and have them do something useful with the money. For instance, they could buy Skype for $5 billion and then throw one heck of a party and then buy another company for $3 billion.

Seriously, if you don't have an idea how to grow a business past a certain point, stop. Give the money to the owners.

Microsoft should have used a small sliver of this price to buy a next generation database like Vertica (bought by HP instead).

Facebook was looking for a video component, if MS manages to force them onto Skype then FaceTime is in trouble. If Facebook on the other hand started using FaceTime, Skype would quickly become a seniors-only Windows-only affair.

You're tripping dude

Microsoft owns 5% of Facebook. They have a bunch of exclusive deals and agreements together.

Facebook is integrated into Bing.

Facebook is integrated into WP7.

Facebook is integrated into Windows Live.

Facebook is integrated into Live Mail.

Facebook is integrated into Microsoft Office/Outlook.

Probably the most telling is that Facebook is already integrated into Messenger.... yup, Facebook contacts, updates and chat is already built right into the core of Windows Live Messenger aka soon to be... ahh... "Microsoft Windows Live Skype Facebook Messenger Series 2"

You combine the social graphs of Messanger (300+ million users) Skype (100+ million users) and Facebook (500+ million users) and FaceTime is pretty much dead outside of Apple-to-Apple device communications.

Not that it really benefits Microsoft though, outside of preventing Google getting some kind of control over the VOIP/IM market. Unless they do something special with Skype I doubt they will even make a dime off it.

It doesn't really affect Apple either. iOS/OSX will still get Skype clients, so no problems there. If they wanted they can even still build Skype into iOS for messaging, VOIP and as a FaceTime alternative.

Everything I've seen about Ballmer tells me he's a spiteful little troll. Being that his early comment about the iPhone has made him a laughing stock in many circles then I'd say that he definitely will do anything he can to hurt iOS.

I too can't help feeling that this is a sad day for Skype.

Why? Microsoft will try to make Skype the standard, which they might do. They also can implement it into the 360 with their new Kinect, and introduce 3D skype. They also got bought out for a great price.

This is a very happy day for Skype, and a sad day for face time, which even though might be better, might not see the adoption it would have seen had Microsoft never done this.

Unless Facetime is ported to Android too, it will never have a chance of becoming a "standard". You really think Apple will do that?

IMO, Microsoft just made Facetime a minor feature on an isolated platform unless Apple has it already developed and ready for a multi-platform that works on more than wi-fi within a few short months. With 80%+ of the installed OS base, Apple can't be timid and slow as a sloth to show they intend to commit to Facetime as an open standard.

Developers have a clear and present option to integrate with Skype, particularly with official MS support now. An open-source Facetime is still vaporware.

Apple doesn't need to make an open-source facetime, or even port it to Android. All they have to do is release a free Windows version of it and it will become a very competitive product. Of course, openning up the standard is still a vital step, without it, facetime will never be the first choice in video communication.

Why? Microsoft will try to make Skype the standard, which they might do. They also can implement it into the 360 with their new Kinect, and introduce 3D skype. They also got bought out for a great price.

This is a very happy day for Skype, and a sad day for face time, which even though might be better, might not see the adoption it would have seen had Microsoft never done this.